Chapter 3 Production and Growth

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How Productivity Is Determined

a. Physical Capital per Worker

Definition of physical capital: the stock of equipment and structures that are used to produce goods and services.

An important feature of capital is that it is a produced factor of production. That is, capital was an output from the production process in the past .

Productivity is higher when the average worker has more physical capital.

b. Human Capital per Worker

Definition of human capital: the knowledge and skills that workers acquire through education, training, and experience.

Productivity is higher when the average worker has more human capital.

c. Natural Resources per Worker

Definition of natural resources: the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits.

Other things equal, more natural resources allows a country to produce more goods and servics.

Some countries are rich because they have abundant natural resources. For instance, some countries in the Middle East are rish simply because they happen to be on the top of the largest pools of oil in the world.

Although natural resourcs can be important, they are not necessary for an economy to be highly productive in producing goods and services. 

Japan, is one of the richest countries in the world, even though having few natural resources. While, Japan imports many of natural resources it needs, and export goods they are skilled at producing.

d. Technological Knowledge

Definition of technological knowledge: society's understanding of the best ways to produce goods and services.

Progress in technological knowledge can make workers to produce more g&s per unit of time.

Common knowledge公共知识: widely used by most producers

e.g. Once Henry Ford introduced the assembly line into auto production, other carmakers quickly followed.

Proprietary knowledge专有知识: known or controlled only by the company that discovered it

e.g. Only the Coca-Cola company knows the secret recipe for making its famous soft drink.

Technological Knowledge vs. Human Capital: 

Technological knowledge can easily be shared among infinitely many producers

Human capital results from the effort individuals expend to acquire this knowledge. It is generally tied to the individuals who expend the effort to acquire it.

PRACTICE 习题3：